ASST CIT 32(3), MUMBAI vs. SHITAL S. SHAH, MUMBAI

order of Ld. Commissioner of Income-Tax (Appeals)-35, Mumbai dated 12.11.2014 for Assessment Year (AY) 2010-11. The Revenue has raised the following grounds of appeal: 1. "On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in restricting of addition of Rs.2,38,32,673/- to Rs.37,63,260/- u/s 69C of the Act as profit on the bogus purchases without giving any reasons of reduction of disallowance." 2. "On the fact and in the circumstances of the case and in law, the Ld CIT(A) has grossly erred in not appreciating the fact that the notices under section 133(6) issued to parties from whom alleged bills were received were returned undelivered by the postal authorities and the assessee has also failed to produce the parties before the AO." & C.O. 142 Mum 2016 Shri Shital S Shah 3. "On the fact and in the circumstances of the case and in law, the Ld CIT (A) has erred in not appreciating that the assessee has not produced any cogent evidence to substantiate the fact that he had taken actual delivery of goods purchased from theses parties. 4. "On the fact and in the circumstances of the case and in law, the Ld CIT (A) erred in deleting the disallowance made by the AO overlooking the statement given by the parties and explicit finding of the investigation carried out by the Sales Tax department and corroborated by the enquires of the AO."

2. The brief facts of the case are that assessee is proprietor of M/s Sheetal Investment and engaged in the business of Civil Contractor, filed return of income for relevant AY on 26.09.2010 declaring total income of Rs. 27,61,040/-. The assessment u/s 143(3) was completed on 07.06.2013. During the assessment proceeding, the assessee approached the Settlement Commission Mumbai on the dispute/matter of bogus purchases. The assessee declared additional income in the application filed before the Settlement Commission. Due to pendency of application of assessee before the Settlement Commission, the assessment proceeding were kept in abeyance. No settlement could be arrived before Settlement Commission as the application of the applicant was considered as invalid, thus, the proceeding before the Settlement Commission was disallowed. The AO again take up the assessment proceeding and while framing assessment, the AO besides the other disallowance, disallowed a sum of Rs. 2,38,32,673/- on account of bogus purchases u/s 69C of the Act. On appeal before the ld. CIT(A), the disallowance was restricted to Rs. 37,63,260/-, which was declared as additional income before the Settlement Commission. Aggrieved by the order of ld. CIT(A), the Revenue has filed the present appeal against sustaining the disallowance at Rs. 37,63,260/-. The assessee has filed a C.O. for deleting the entire disallowance.

3. We have heard ld. Departmental Representative (DR) for Revenue and ld. Authorized Representative (AR) for the assessee and perused the material available on record. The ld. DR for the Revenue supported the order of AO and would argue that in addition to the additional income offered by assessee before the Settlement Commission, certain percentage on account of bogus purchases may further be disallowed. The ld. DR argued that during the assessment proceedings the assessee has failed to prove the genuineness of purchases from the parties. The assessee has & C.O. 142 Mum 2016 Shri Shital S Shah purchased material from the parties, who were declared as bogus/hawala dealer by VAT/Sales Tax Department, Government of Maharashtra. On the other hand, ld. AR of the assessee would argue that the assessee has proved the genuineness of transaction. The purchases of the assessee were genuine. The assessee has proved the consumption of the material in the Civil Contract executed, which were awarded by Municipal Corporation Greater Mumbai. The assessee proved the genuineness by payments certificate by accounting in the Stock Register and the payments was made through account Payee Cheques. The claim of expenses of assessee has been corroborated by various documentary evidences filed before the AO as well as by ld. CIT(A). The AO relied upon the information of third party, the mere appearance of names of certain supplier on the website of Sale Tax Department; Government of Maharashtra does not prove that those parties have not supplied the material against the payment received by those persons. All the statement on which the AO relied were general statement, there was no reference in the said statement about the assessee. The AO has not given any opportunity to cross-examine those parties on whose statement the reliance was made. It was further argued by ld. AR of the assessee that during the assessment proceeding on 18.02.2013, the assessee filed application u/s 245C before the Income-tax Settlement Commission to settle all the issues. The application of the assessee was accepted by Settlement Commission for consideration. However, the application of assessee was declared as invalid due to some technical reason and no settlement could be arrived. In support of C.O. ld. AR of assessee argued that ld. CIT(A) on the basis of declared additional income sustained the disallowance without giving any independent finding. It was argued that entire disallowance is liable to be deleted.

4. We have considered the rival contention of the parties and gone through the orders of authorities below. During the assessment proceeding, the AO asked the assessee to furnish the detail of the parties from the assessee has made the purchases. The assessee submitted the details to the AO. After perusing the such details the AO noticed that assessee have made purchases from the following parties: Adinath Trading Co. Rs. 6,51,801/- Ambika trade Impex Rs. 11,89,735/- 3 & C.O. 142 Mum 2016 Shri Shital S Shah Atlantic Traders Rs. 8,42,582/- Balaji Traders Rs. 41,60,942/- Dharmesh Trading Co Rs. 43,03,057/- Krsna Enterprises Rs. 22,07,753/- Mahavir Enterprises Rs. 46,04,468/- Om Enterprises Rs. 18,14,688/- Prayosha Trading Co. Rs. 7,54,523/- Shivraj Traders Rs. 5,94,675/- Jain Corporation Rs. 27,08,667/- Total: Rs. 2,38,32,673/-

5. The AO noticed that the name of all parties was shown in the list provided by the Sale Tax Department, Government of Maharashtra. The AO issued notice u/s 133(6) to verify the addresses of the parties. The notices issued to these parties were returned back unserved. The AO further made the enquiry through Inspector on which it was revealed that the parties were providing accommodation entries. During the assessment proceeding, the assessee again vide reply dated 03.06.2013 contended that assessee is doing construction/repair work for Municipal Corporation, Mumbai under the contract of M/s Seth Construction Company. All purchased material has consumed, payment of material were made through Bank Challan, the statement provided by Sales Tax Department and the verification conducted by Departmental is not sufficient for treating the purchases as non-genuine. The assessee dealt with various business dealers and parties and it is not her responsibility to trace all of them, the office of AO do not produce the party for cross-examination and the list of bogus/hawala dealer is not provided. The contention of the assessee was not accepted by AO holding that assessee could not produce delivery challan, Lorry receipt, mode of transportation, evidence of payment of Octroi and Stock Register etc. in support of genuineness of purchases. The AO further concluded that the affidavit, deposition and statement of hawala operators are enough to show that assessee did not purchase any goods or these entities are not carrying out any business. The Sales Tax Department has made a finding and uploads in their website, the name and entities, who were involved in giving bogus bills only, after them carrying out detailed enquiry and investigation. The finding of the postal authority that the parties are not available at the given addresses. The AO disallowed the aggregate of purchases from all 11 parties. On appeal before the ld. CIT(A), the assessee made the similar 4 & C.O. 142 Mum 2016 Shri Shital S Shah contention and in addition submitted that at the best 8% of the value of contract should be taken to be sufficient for the purpose of covering all the issues. The ld. CIT(A) after considering the contention of assessee passed the following order: “I have gone through the facts of the case, contention of the AO and submissions of the appellant. The AO has gone into the issue by sending 133(6) notices and making field enquiries, but has not found any concrete evidence to doubt the genuineness of the payments being shown by the appellant through the bank account. The AO has also definitely not been able to question the availability of the inventory that has been subsequently used. To that extent, the examination of that aspect has not created any doubt in terms of the purchases. However, as far as the evidence submitted by the appellant is also concerned, the appellant has filed his own books, ledger accounts and its own bank statement to further his argument. The fact that the payments are being made through cheques is not something that is being doubted. In fact, that is the contentious issue, that these parties which are indicated by the Sales Tax Department through a procedure which appears to be technically correct on paper are in fact engaged in false billing for a fee/commission. The onus of proving the entire transactions to be genuine is definitely on the tax payer, when he is making the claim of purchase and especially in light of the doubt that has been raised by the enquiries conducted by the Sales Tax Department, the onus is even more on the tax payer to show that as far as he is concerned, he has discharged his tax related liabilities in an accurate manner. So therefore, while on one hand the AO may not had a clinching proof but the primary responsibility which is ensued on the tax payer has also not been discharged in terms of establishing the genuineness of the transaction. Merely filing copies of his own ledger accounts and bank accounts does in no way establish that the parties actually existed, but then considering that the books of accounts have not been disputed, sales have not been disputed and neither cheques have been shown to be received back as cash by the appellant, I am of the considered view that in the context of the situation where the AO has himself said that what is being doubted is not the quantity of purchases per se, which has entered into the books of the appellant, but that the purchases were billed through bogus parties, then the cause of justice would be served by looking at the gross profit margins being declared by the appellant. Considering the above fact that the declaration of additional income of Rs. 37,63,260/- was made by the appellant before the Settlement Commission, the same is therefore, taken for the purpose of disallowance to be made on this account. Thereby, the appellant gets a relief of Rs. 2,00,69,413/-.”

6. We have seen that the ld. CIT(A) has considered the contention of the assessee that there was no material before the AO to doubt the genuineness of payments made by assessee through bank challan. The ld. CIT(A) has examined the entire transaction and observed that the onus to prove that transaction is genuine is on the tax payer/assessee when he is making the claim when the Department doubted the genuinity on the basis of enquiries conducted by Sales Tax Department. The ld. CIT 5